Question

Michael Roberts is a cost accountant and business analyst for Darby Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct cost categories: direct materials and direct manufacturing labor. Roberts feels that manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufacturing overhead to production based upon pounds of materials used.
At the beginning of 2014, DDC budgeted annual production of 410,000 doorknobs and adopted the fol-lowing standards for each doorknob:


Actual results for April 2014 were as follows:
Production ...................32,000 doorknobs
Direct materials purchased ............12,900 lb. at $ 10> lb.
Direct materials used .............. 9,000 lbs.
Direct manufacturing labor ........... 29,600 hours for $ 621,600
Variable manufacturing overhead ........$ 64,900
Fixed manufacturing overhead ..........$ 160,000

Required
1. For the month of April, compute the following variances, indicating whether each is favorable (F) or unfavorable (U):
a. Direct materials price variance (based on purchases)
b. Direct materials efficiency variance
c. Direct manufacturing labor price variance
d. Direct manufacturing labor efficiency variance
e. Variable manufacturing overhead spending variance
f. Variable manufacturing overhead efficiency variance
g. Production-volume variance
h. Fixed manufacturing overhead spending variance
2. Can Roberts use any of the variances to help explain any of the other variances? Giveexamples.


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  • CreatedMay 14, 2014
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